Foreign Relations of the United States, 1977–1980, Volume XIII, China

189. Minutes of a Policy Review Committee Meeting¹

Washington, January 8, 1979, 10:05–10:45 a.m.

SUBJECT

• U.S./China Economic Relations

PARTICIPANTS

• State
• Secretary Vance
• Richard Holbrooke (Asst Sec/East Asia Affairs)
• Scott Hallford (Senior Economic Officer)
• Treasury
• Secretary Blumenthal
• Richard Fisher (Exec Asst to Sec)
• JCS
• General David Jones
• Lt Gen William Smith
• OSD
• Stanley Resor (Under Sec for Policy)
• Dr. Ellen Frost (Dep Asst Sec for Internt’l Econ Affairs)
• Agriculture
• Secretary Bergland
• Dale Hathaway (Asst Sec)
• Commerce
• Secretary Kreps
• Frank Weil (Asst Sec for Industry & Trade)
• Energy
• Harry Bergold (Asst Sec for International Affairs)
• Trade Negotiations
• Ambassador Strauss
• John Renner
• CIA
• Admiral Turner
• John Holdridge
• Transportation
• Dep Sec Alan Putchman
• OSTP
• Dr. Frank Press
• Export-Import Bank
• Director John Moore
• David Denoon
• NSC
• Ambassador Owen
• Michel Oksenberg
• Tim Deal
• Madeleine Albright
• Subcommittee Chairmen to Present Reports
• Herb Hansell (Dept of State)
• Julius Katz (Dept of State)
• J. Atwood (Dept of State)
• Douglas Bennett (Dept of State)

MINUTES OF MEETING

Secretary Blumenthal: The purpose of this meeting is to coordinate the development of our economic relations with the PRC. In particular, we must develop recommendations to the President on the economic aspects of Vice Premier Teng’s visit to the U.S. and on my visit to the PRC in February. Those discussions will lay the basis for our economic relations with the PRC, and more specifically will set the context for such visits as that by Juanita Kreps later.

The key items which need to be covered are:

—Claims/Assets: Nothing can go forward in the trade realm in terms of government agreements until we begin to move to a solution on the claims/assets issue.

—Most Favored Nation (MFN) Status and Credits: We particularly must decide how MFN and government-provided credits should fit in with our overall policies in these areas toward other countries and how MFN and credits should accompany our search for a trade agreement.

—Future Work: We must also assess what additional issues need to be handled in the future.

There are a couple of other matters—civil aviation and shipping. But I do not believe we need to spend time on these issues here. We have prepared for this meeting a paper on civil aviation with the PRC, and Dick Cooper at State can work toward negotiating a civil aviation agreement.² We all agree, I believe, that we should attempt to negotiate a bilateral agreement, and I think that we should simply go forward on that.

As to the ocean transport, I gather that that is a lesser item, and we could go forward on that in a normal manner.

Secretary Kreps: There may be some reason to move forward on an ocean transport agreement more rapidly than that implies.

Secretary Blumenthal: But I think you would agree with me it is not a priority issue.

Claims and Assets

Secretary Blumenthal: The first key issue is claims/assets. Do we all agree that this is a priority item? Should the President indicate to the Vice Premier that it is a priority item for us? One sequence would be for the President to so indicate to Teng, and I could then move it forward in Peking, with the details to be negotiated soon after my visit.

There are a couple questions, however. Should we deal with the private claims, or with the government and private claims together? I gather that there are three government claims—post office, ExIm Bank, and seized governmental property.

Secretary Vance: I think we should deal with the government as well as the private claims. As far as Congress is concerned, it may be more important to deal with the government claims than the private claims. We certainly will wish to consult with the Congress on the government claims, and perhaps we could reach an agreement on the Hill that we wash out certain government claims, such as lend lease.

Herbert Hansell: ExIm Bank claims may also be of a different status.

Secretary Vance: There are two groups to talk to about claims/assets before the Teng visit—Congress, and at the Han Hsu level, with the PRCLO.

Secretary Blumenthal: Yes.

Secretary Vance: This is a very complicated issue, and my guess is that we will have to pick C or D from the Options Paper prepared for this meeting. (Both Options C and D included a Chinese contribution to the sum to be distributed to the claimants.)³

Secretary Blumenthal: My brief talk with the Chinese Ambassador here suggested that the Chinese preference is to balance the blocked assets against the claims. To get them to pay will be strange for them.

Secretary Vance: I suspect there will be no way to get this through the Congress, however, without the Chinese making a contribution.

Secretary Blumenthal: Alright. This is a matter that you and I can talk about and we will consult on the Hill.

Textile Negotiations

Secretary Blumenthal: Bob, where does the textile business stand?

Ambassador Strauss: Michael Smith and John Renner have had preliminary discussions, and we have agreed with the Chinese to have serious talks at an appropriate time. These talks are scheduled to begin on January 22.

Secretary Vance: My opinion is that it is reasonable to request the Chinese to exercise restraint in select categories, but we should not seek an across-the-board agreement with them at this point. They would not understand that. They would say that they are not involved across-the-board. We should be selective, and focus on the key areas where their exports to the U.S. are having a demonstrable impact.

Ambassador Strauss: I agree. That is the approach we will take.

MFN and Credits

Secretary Blumenthal: There are two principal issues here—do we deal with this issue as it affects the PRC alone or do we bring the Soviet case into play as well; and second, do we employ the waiver option under Jackson–Vanik, or do we seek additional legislation?⁴

Secretary Vance: The issue of MFN and export credits is essential to the kind of relationship we seek with China. But to extend MFN and to extend export credits and not to do so for the Soviet Union would involve us in a “China tilt,” a development which would have the utmost gravity for the conduct of U.S. foreign policy.

I believe that we cannot repeal Jackson–Vanik, but we could have legislation lifting the assurances on immigration that are called for under Jackson–Vanik. That is the direction in which I lean.

Secretary Kreps: Business is eager to expand trade with the PRC, but the businessmen with whom I have talked hope that we do not treat the two differently. Businessmen wish us to retain a policy of evenhandedness.

Ambassador Strauss: The issue here is one of timing. When do we seek an adjustment to Jackson–Vanik?

Secretary Vance: As far as consultations on the Hill are concerned, the sooner the better.

Ambassador Strauss: If you look at immigration numbers in the last few months, with the increased exit of Jews from the Soviet Union, the American Jewish community might be willing to see an alteration in our trade policy toward the Soviet Union. Perhaps an approach should be made to Senator Jackson that his effort has gotten results and adjustments are therefore due in the way we approach the Soviets. In any case, this is a complex matter and will involve a long legislative process.

Secretary Blumenthal: Yes. And we must be very careful in our seeking either an amendment or additional legislation that would refine Jackson–Vanik.

Secretary Vance: We must consult soon, or the issue will be taken from our hands. AuCoin is prepared to submit legislation granting credit to the PRC and not the Soviet Union. We may see many initiatives of that sort.

David Aaron: But we have to consider how SALT, MTN, and this are related. What is our timing on each of the three?

Secretary Vance: We should at least begin discussions on MFN and credit for the PRC and the Soviet Union, and we must begin discussions with Scoop as soon as he gets back.⁵

Secretary Blumenthal: There is no way that we can establish a regular economic relationship with the PRC without MFN and without ExIm Bank financing. But this does not mean that these two issues must be solved immediately.

Ambassador Strauss: On the Administration side, we should keep the number of people involved in consultations on the Hill limited. Let us not work at cross purposes. I would suggest that Blumenthal, Vance, and Frank Moore bear the responsibility here.

Secretary Blumenthal: Yes. Let us do it that way.

Ambassador Owen: What time frame are we talking about? In the light of MTN, September may be the earliest that we could address this legislation on the Hill.

Secretary Vance: Yes. It may take that long. But that is alright. We need a trade agreement with the PRC in order to extend MFN, and that in itself is going to take awhile to negotiate.

Secretary Blumenthal: We would consult with the same people on the Hill on claims/assets, particularly the Senate Finance Committee and the House Ways and Means Committee.

Ambassador Owen: Are you sure we can wait until September?

Secretary Blumenthal: Yes, in terms of seeking passage of legislation. But the consultations must begin way before that, so that we know what to talk to the Chinese about. We have to make progress on two fronts simultaneously—working toward a trade agreement with the PRC and working toward a satisfactory way of extending MFN and credit to the PRC on the Hill.

Mr. Holbrooke: There are two other prior issues as far as China is concerned on the Hill—confirming an Ambassador to Peking and securing our Taiwan omnibus legislation.⁶

Mr. Bennett: These issues are really inseparable. The Ambassador will be asked, during his hearings, what we intend for China with respect to MFN.

Secretary Blumenthal: If we consider these items together, there is some advantage, however. It pays to keep before Congress’ mind as it considers the normalization process that trade will be an important benefit to blow from it. We need to be coordinated in order to move the process forward.

Joint Economic Committee with the PRC

Secretary Blumenthal: Let me raise one other issue. Is it appropriate to begin to think about establishing a joint committee on economic relations with the Chinese now? Or should we wait awhile until we address the prior problems? It may be premature to establish such a committee, since we do not know yet what structure is needed to facilitate a commercial relationship with the PRC.

Secretary Vance: I agree. This is not an issue we need decide now.

Secretary Kreps: I would hope to raise it on my trip.

Secretary Blumenthal: My only point is that we need not confront the issue at this point.

ExIm Bank

Mr. Moore: I would like to note that the ExIm Bank has no budget for credit for China or the Soviet Union. The credit terms which the Chinese are seeking would require government credit. We should encourage the PRC to use private banking credit as much as possible.

Secretary Blumenthal: If it comes to that, we may need supplementary legislation.

Ambassador Owen: Is your problem budgetary?

Mr. Moore: Yes. We just do not have the money for extending credit to the PRC or the Soviet Union. All our funds are now committed. How much do we think the Chinese will wish in government credit?

Mr. Weil: One guess is $10 billion through 1985, and we could expect the same for the Soviet Union.

Public Education

Secretary Blumenthal: A final issue concerns selling our China policy publicly.

Mr. Holbrooke: A major meeting for businessmen will be held on January 15, and we expect considerable media attention on that day. In addition, a lot of material has been developed and is available at State or the White House with Anne Wexler.

Business Invitation

Secretary Kreps: The business community is talking a lot about the need for business visitation and China, and this is certainly something toward which we should work. In addition, there are many complaints about licensing problems, and here we should encourage the Chinese to cooperate with our end-use and visitation requirements.

Joint Statement

Secretary Kreps: Are we looking to a joint statement to be issued by the President and the Vice Premier during his visit? Perhaps it could include some of these subjects we have discussed.

Secretary Vance: Yes, we would wish to have a joint statement.

Tasking

Secretary Blumenthal: Let me summarize the results of the meeting:

—Cy and I will talk further about claims/assets.

—Cy, Frank Moore, and I will begin consultations on the Hill concerning claims/assets, ExIm Bank, and MFN.

—State will prepare a paper for the President on the claims/assets issue and on the credits issue.

—State will prepare a paper on negotiating a civil aviation agreement.

—These papers should be geared toward the Teng visit, which contained talking points for the President’s meeting with Teng.

1. Source: Carter Library, NSC Institutional Files (H-Files), Box 72, PRC 086, 1/8/79, U.S.–China Economic Relations. Confidential. The meeting took place in the Conference Room of the Old Executive Office Building. The minutes refer to this meeting as a Special Coordination Committee meeting rather than a PRC meeting, whereas the Summary of Conclusions (see Document 190) calls it a PRC meeting. It is in fact most accurately termed a PRC meeting since it was chaired by a Department head (Blumenthal) rather than Brzezinski, and because it dealt with foreign policy and international economic issues. On the distinction between PRC and SCC meetings, see Brzezinski, Power and Principle, pp. 59–60, and Vance, Hard Choices, pp. 36–37.
2. The papers on civil aviation and shipping were not found.
3. The options paper presented four alternatives for settling the Sino-American dispute over claims and assets: option A, mutual assignment of claims and assets; option B, a lump-sum payment; option C, a guarantee of a fixed sum payable out of assigned assets plus cash payment by PRC; option D, assignment of assets supplemented by a fixed payment. (Memorandum from the Claims/Assets Subcommittee to the Policy Review Committee, stamped January 5; Carter Library, National Security Affairs, Staff Material, Far East, Oksenberg Subject File, Box 45, Meetings: 1/1–9/79)
4. The Jackson–Vanik amendment to the 1974 Trade Act denies most-favored-nation trade status and trade credits to certain countries with non-market economies that restrict emigration. Katz chaired an interagency meeting on January 3 to discuss “the Jackson–Vanik amendment problem” in anticipation of the January 8 PRC meeting. Renner reported that at the meeting, “It was agreed that there are three basic options: A. Seek a waiver under Jackson–Vanik; B. Go for legislation to modify the Jackson–Vanik requirements; C. Combine the two.” “State, Treasury, and Agriculture leaned toward option 2 on the grounds that this course of action would be the least likely to annoy the Soviets. I presented arguments for the waiver route and was supported to some extent by Commerce. I feared that seeking legislative changes would take a long time, and probably would get involved in the debate on SALT II (another Jackson issue).” (Memorandum from Renner to Strauss and Wolff; National Archives, RG 364, 364–80–4, STR Subject Files, Box 2, China [The Country—Not the Tableware])
5. Scoop was the nickname of Senator Henry M. Jackson.
6. See Document 213.